Activity Ratios are used for monitoring a business’ ability to use its property (assets) - how the business uses individual business parts, whether it has a relatively large unused capacities, whether it has enough of productive assets. There are combined ratios that measure balance sheet items (assets) and profit and loss account (sales).
Accelerating turnover of assets is a positive trend because it means higher sales for businesses. Excessive acceleration of the turnover may however jeopardize a consistency of production and sales.
The ratios measure the capital bound in individual forms of property with two types of the relationship:
how many times the assets turn over during given period: Turnover speed = Sales (Costs) for given period / Total Assets how long the assets is bound in given form: Turnover time = Total assets / Daily sales (costs)
In practice, the following ratios are most often used:
- Average Collection Period
- Creditors Payment Period
- Fixed Assets Turnover
- Inventory Turnover
- Inventory Turnover Ratio
- Total Assets Turnover Ratio
- Trade Deficit
Related terms, methods and analytical techniques:
- Assets
- Cash Flow
- Financial Analysis
- Inventory Optimization
- Liabilites & Equity
- Profit
- Profit categories
- Sales
Related management field:
Related discipline:
Related profession:
Save this on Delicious
